By Michael O’Neill

Prime Minister Mark Carney got invited to a special club — Donald Trump’s Oval Office. Mr. Carney eagerly accepted the invitation for the October 7 visit in hopes of securing some tariff relief which has been strangling Canadian exporters since the spring.

Those hopes were dashed even before the wheels on Carney’s Airbus CC-330, dubbed “CanForce One,” hit the tarmac. That’s because a few hours earlier Trump tweeted “Beginning November 1st, 2025, all Medium and Heavy Duty Trucks coming into the United States from other Countries will be Tariffed at the Rate of 25%. Thank you for your attention to this matter!”

It’s guaranteed that Carney did not thank him for paying attention. Those measures target roughly $4.5 billion worth of cross-border shipments and come on top of the existing American levies.

Tariffs, Tweets, and Pipeline Dreams

But even so, Mr. Carney may have got a win. His obsequious demeanor in the Oval Office portion of the meeting may have greased the skids to kick-start the Keystone XL pipeline — a project that’s been on and off for fifteen years. It’s kind of a pet project for Trump — so much so that just after he was sworn in as the 47th President, he tweeted “We want the Keystone Pipeline built.”

And it may still happen. CBC reported that the President was receptive to Carney’s overture about the project. If it works out, Carney’s Washington trip was far more successful than the Blue Jays’ trip to the Bronx last night.

Tariff disputes and pipeline dreams are ongoing and long term. The impact from the news is largely reflected in financial markets. Traders are focused on the outlook for Canadian and US interest rates along with economic growth prospects.

Running on Empty

The Canadian growth prospects are grim. The economy is running on fumes with stagnant productivity slowing investment while exports have been hammered by tariffs. Unemployment is rising and households and governments are drowning in debt, leaving no cushion for shocks. Housing is unaffordable, red tape blocks progress and Canada’s competitiveness is in retreat.

Traders know all that, which is why it is events south of the border that are driving the Canadian dollar and interest rates.

America is Driving Risk Aversion

Global investors are getting jittery about America’s stability. The mainstream media and social media are saturated with articles, videos, and striking images of heavily armed US troops marching into cities like Los Angeles, Chicago, Washington D.C., and Portland, Oregon under President Trump’s orders. Trump asserts that these deployments are necessary to protect citizens from rampant crime and lawlessness, which he attributes to illegal immigrants allegedly sheltered by Democratic leaders in those regions.

Historians see the fall of the Roman Empire.

The Congressional stalemate that has shut down the US government, although a regular occurrence, has still exacerbated the anxiety. That’s because Trump is threatening a series of moves that, if they occur, would greatly undermine the economy and boost unemployment.

Discord is Not a Honda

There is discord on the Federal Open Market Committee (FOMC). That’s no secret, especially after Trump loyalist Stephen Miran became a Governor (temporarily). On September 17, his was the lone voice calling for a 50 bp rate cut and he reiterated his justification for the view today. Miran called for rapid rate cuts, claiming that stable bond markets validate an accelerated easing path. He believes inflation is moderating and that monetary policy should shift quickly to support growth.

The day before, Minneapolis Fed President Neel Kashkari warned “if we were to cut interest rates dramatically beyond what is justified based on the economics, you would then see probably a very low unemployment rate and very high inflation as the economy was effectively overheating.”

Those comments summed up the FOMC minutes released today.

Washington Cooking Loonie

USDCAD has been bouncing between 1.3720–1.3990 since Trump’s 30% tariff hit on August 1. Bank of Canada Governor Tiff Macklem and crew are still caught between a weakening domestic outlook, a dovish Federal Reserve, and a federal government’s adoption of a “smile and bow” approach to tariff retaliation.

The BoC is going to cut rates by 25 bps on October 29. They have no choice, and Friday’s employment report (forecast 5,000 vs -65,000 in August) won’t alter the outlook.

If Carney’s D.C. visit proved anything, it’s that the Canadian economic prospect story is being written by Trump and the author isn’t particularly interested in happy endings.